• China’s January holiday season smartphone sales show little YoY growth but this is good news.
• Although the two weeks preceding and following the Chinese New Year show hardly any change, the outlook tells a different story.
• Elimination of major COVID restrictions provides a bigger growth runway.
• 2022 saw October, November and December (typically China’s best months) collapse. This is far less likely to happen in 2023.
• More new product launches reflect a back-to-business mindset, though caution still remains.
• These factors coupled with a week earlier Chinese New Year should help China recover to positive growth in 2023, albeit in low single digits.

China’s smartphone market has recorded a good start to 2023 driven by the restoration of normal social activities in the country after the COVID-19 wave in December. The Chinese New Year season also started earlier than usual this year, helping the weekly sales walk out of the trough at the beginning of 2023. At the start of 2023, the sales quickly increased week over week to reach above 7 million before the week the Chinese New Year season started. In four out of five weeks, the sales stayed above 6 million, a level seldom reached in 2022 when the pandemic haunted China’s cities from time to time. The average weekly sales during the period were 6.7 million units, much higher than the average of 5.5 million units in 2022. In January, the monthly sales were flat compared to the previous year’s same month, which recorded the highest sales in 2022, but sequentially grew more than 40%. Apple remained China’s biggest OEM in January in terms of sales share and its sales increased about 6% YoY, according to preliminary data from Counterpoint Market Pulse Service. The smartphone market in China has contracted after 2017 in terms of YoY sales growth. Q4 2022 recorded a 15% YoY decline, hitting major OEMs’ confidence and further darkening market prospects. Although major Android OEMs will continue to launch new models in Q1 2023, the OEMs and their distributors are still cautious about restocking. Many of them got cold feet after the COVID shock in December and the nightmare of high inventory in H1 2022 is still fresh.

The industry is skeptical that the strong sales in the first five weeks of 2023 are a solid indicator of a recovery in demand. Some attribute this more to the pent-up demand from December and the earlier-than-usual arrival of the Chinese New Year season rather than the substantial improvement on the demand side. However, these strong sales do bring in some fresh air. They not only helped digest the newly added inventory but also ignited the discussion on whether the stagnant market will finally bottom out and rise in 2023. We believe the withdrawal of the “COVID-Zero” policy will provide a healthier environment for the smartphone market. Besides, as Chinese OEMs slow down their overseas expansion, they would focus more on the domestic market and step up competition in the mid-to-high-end segments. If the current growth momentum can persist through the end of Q1 2023, industry players should be more confident about a market recovery. Having said that, we still need more evidence to conclude a robust or significant recovery is on the way. We stick to our previous low-single-digit growth forecast for 2023.